Mexico recorded only 20 M&A transactions in October, of which 10 had disclosed values totaling US$762mn, representing a 35.5% annual decline in the number of operations and 73.3% drop in reported values compared to October 2017.

After marking a solid first quarter, M&A activity has been in steady decline.
According to M&A research firm Transactional Track Record (TTR), in the first 10 months of the year, there were 270 M&A deals with 112 reporting deal values totaling US$11.5bn ­ a 6.3% year­on­year rise in the number of deals but a 50.5% decline in reported deal values.

"We can attribute the deceleration in the number of operations with respect to 2017 to the fact that in July 2018 there were presidential elections, which always generates an effect of uncertainty that slows down the market," Andrés Nieto, head partner of banking, finance and capital markets practices at Von Wober y Sierra, in an interview with TTR.

Nieto noted that the financial, insurance and real estate sectors have been the most active so far in 2018, each with 37 operations, followed by the distribution and retail sectors, which recorded 21 operations.

"In this sense, we can not say that there have been many surprises, since these have been the most active sectors in recent years, which is expected to continue happening," said the lawyer.

Regulations clearing the path

"Mexico has become one of the most competitive and stable markets within Latin America and the rest of the world thanks to the effort that the Mexican authorities have made to strengthen its regulatory framework," said Nieto.

"The reforms that have been presented in recent years in different sectors, such as energy, telecommunications, economic competition, anticorruption and recently in the sector of technological financing or 'Fintech', have boosted investments in Mexico, creating a very attractive environment for both national and international investors."

The reforms have generated greater certainty for investors, opened up new investment opportunities in sectors that were previously reserved only to the state and in which private investment could not participate, and have also promoted competition in some sectors by trying to eliminate monopolies, Nieto said.

The expert also highlighted the impact of Mexico's groundbreaking regulatory framework for fintechs, enacted in 2018, as a proponent for future M&A deals.

"This 'Fintech Law', novel in certain aspects and pioneer in some others worldwide, has granted a very necessary level of certainty to the market, because there were several fintech companies operating in Mexico in legal "gray" areas and under stretched or ambiguous interpretations of the legislation available," said Nieto. "Undoubtedly, this new level of certainty has also been the reason for the significant increase in investments during 2018, and it is expected that, with the settlement and better knowledge of the 'Fintech Law', this is one of the sectors that has the greatest investments in the coming years."

Private Equity and VC

Mexico saw 25 private equity transactions valued at US$2.36bn from January to October; however, this represented 31% fewer equity deals than in the same period of 2017 and a 41% drop in reported deal value.

On the other hand, 55 venture capital operations valued at US$569mn were recorded, with a 25% increase in the number of transactions and a 56% increase in deal value.

Source: Business News Americas / BN Americas - Chile